Here's a market trend you can almost bank on: Whenever gold
prices jump, gold experts come out of the woodwork telling their
fervent followers to buy more bullion because gold prices are
heading to the moon! It's a pattern that's repeated itself multiple
times over the past two years. It's also toxic advice that's been
In fact, the rallies in gold prices have been brief, but just long
enough to fool the gullible masses into believing that prices are
still going up.
Since 2011, there have been nine notable bull traps in gold (see
chart below). And gold's one-day rally of 4.1% on the Federal
Reserve's Sept. 18 statement that QE would continue turned out to
be another classic bull trap.
A "bull trap" is defined as an inaccurate measure that shows a
decreasing trend in the price of an asset or investment has
reversed itself and is now heading upward when in fact the asset
will resume its decline. Technicians also refer to a bull trap as a
Just days ahead of the most recent bull trap in gold, we alerted
our readers of the high profit opportunity that continues to play
On Sept. 15, we wrote:
Gold bears (shorters) should get a better entry price this week to
initiate or add to precious metals shorts.
That golden opportunity (pun intended) to boost short exposure to
precious metals came on the Sept. 18 one-day rally. Meanwhile, gold
bugs like Peter Schiff and James Turk were celebrating their
one-day victory, predicting higher prices. But we recognized that
another bull trap had been set.
On Sept. 18 we wrote:
Gold miners are a leveraged play on physical metals and if the
next leg down in metals prices takes hold, as we suspect, miners
should lead the way down. Buy the
Direxion Daily Gold Miners Bear 3x Shares
(NYSEARCA:DUST) around $24.60 with a price limit up to $25.25. DUST
aims for triple opposite da
ily performance to mining stocks. A tandem options trade is
to buy the Market Vectors Gold Miners ETF
(NYSEARCA:GDX) Oct 2013 25 put options around $40."
How did our gold trade turn out?
Via intraday alerts to our readers on Sept. 19 and Sept. 20 we sold
our DUST position for a two-day +16.5% blended profit. DUST aims
for triple opposite daily performance to mining stocks. Our tandem
trade in the GDX Oct 2013 25 put options were sold for a two-day
gain of +68%.
Despite higher demand in the physical bar and coin category vs.
lower investment demand, the total aggregate demand for gold
bullion has still fallen 23% over the past year. The only place
where fundamental demand for gold is up is among Chinese and Indian
consumers. However, instead of being a bullish signal, as gold bugs
have been misled to think, consumer sentiment -- regardless of the
continent where it occurs -- is a telltale contrarian signal.
The technical damage done to gold and silver prices in April and
June was significant. And the damage will take time to repair. In
the meantime, we continue to profit from the bull trap in gold.
Editor's note: This story by
originally appeared on
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